In the past decade, floods and fires caused by natural disasters have had a cumulative effect on the property insurance market, driving up rates and reducing capacity for all property insurances — including builder’s risk.

Hurricane Ian’s landfall in western Florida last September caused at least $50 billion in insured losses,1 and California floods in January have cost at least $31 billion in insured losses so far.2 Globally, insured losses from floods between 2011 and 2020 reached $80 billion, twice the losses from the previous decade.3 And those statistics don’t include losses caused by other catastrophes such as fires and tornados.

With the reinsurance market unable to rely on its outdated risk models, capacity for insuring against these property risks has diminished, creating a tsunami of problems for the construction industry, insurers, financial institutions and the economy overall.

Builders already under pressure from a shortage of labor and materials, as well as supply chain delays, also face significant challenges in securing adequate builder’s risk coverage.

Year-after-year losses pressuring insurance marketplace

Before Hurricane Ian wreaked havoc on southeastern Florida and overflowing rivers deluged California towns, builder’s risk prices were elevated, largely due to losses on wood frame projects. Double-digit growth in the number and value of construction projects, particularly frame, has now outpaced the industry’s capacity to insure the risk.

Builder’s risk rates are up 15% to 20% on many projects now and likely to rise even more, and even in non-CAT risk zones, capacity remains extremely tight. In CAT-exposed areas — such as Florida, Texas and California — rates are up as much as 100%. In those exposed areas, the question is not how much builder’s risk coverage will cost, but whether there’s enough capacity to satisfy lenders.

How builders can respond

The insurance environment has placed the construction industry in a difficult position. Some building projects may be postponed due to the inability to secure sufficient insurance, and lenders are reassessing or relaxing their insurance requirements for building projects, risking exposure if another disaster strikes.

Builders can take several steps to survive in this challenging insurance landscape:

  • Ensure projects in CAT-exposed areas meet or exceed local building codes. This will minimize the likelihood of a total loss to a structure in the event of natural disaster such as a hurricane and avoid outsized claims.
  • Open discussions early with broker partners about upcoming building projects and their timelines. Engaging an insurance expert can identify issues in pending projects that may impact insurability. This approach also can prepare management for any premium sticker shock that may arise due to the scope and/or location of the build.
  • Position yourself as a best-in-class risk. With reduced carrier appetite for writing builder’s risk, builders with a track record of successful projects and excellent risk management programs for reducing water intrusion, theft and fire will be more likely to secure the coverage they need at a price they can afford.

Contact HUB International’s construction insurance experts to learn more about finding adequate builder’s risk coverage for your future projects.

1 CNBC, “Hurricane Ian caused the second largest insured loss on record after Hurricane Katrina,” Dec. 1, 2022.
2 SiliconValley.com, “California storm losses estimated at more than $30 billion,” Jan. 12, 2023.
3 CNBC, “Flood losses to insurers jumping drastically and only a small fraction of what’s damaged is insured,” Sept. 2, 2022.